Principles of Economics Gross Domestic Product Essay

Principles of Economics Gross Domestic Product - Essay Example During the base year nominal and real GDP are equal. Therefore real GDP reflects both prices and quantities of goods and services produced by an economy, whereas nominal GDP reflects the produced quantities only. GDP does not reflect accurately the nation's productivity. There are products that GDP excludes, because it is difficult to measure them. For one thing, GDP includes all items produced and sold legally in the market. This means that products that are produced and sold illegally cannot be traced and measured by the GDP. Additionally, GDP does not include products and services that are actually produced by households but never enter the market. These are, for example, home grown fruit or vegetables that are used within the households that cultivate them. Also, GDP excludes other immeasurable variables like the quality of the environment or leisure time and does not reflect the distribution of income within an economy.